1. Fashion Trends, Inc., a regional fashion apparel retailer, wants to prepare a 2018 Pro Forma Income Statement and a 2018 Balance Sheet using the following 2017 and 2016 data: Fashion Trends, Inc. Balance Sheet For the Period Ended Dec. 31, 2017 2017 2016 6,148,000 5,134,000 4,176,000 3,422,000 1,972,000 1,712,000 Sales Cost of Goods Sold Gross Profit S,G&A Expenses Fixed Expenses Depreciation Expense EBIT Interest Expense Earnings Before Taxes Taxes Net Income 588,000 590,000 70,000 70,000 478,000 446,000 836,000 606,000 186,000 182,000 650,000 424,000 195,000 127,200 455,000 296,800 Assets Cash and Equivalents Accounts Receivable Inventory Fashion Trends, Inc. Balance Sheet As of Dec. 31, 2017 Total Current Assets Plant & Equipment Accumulated Depreciation Net Fixed Assets Total Assets Liabilities and Owners' Equity Accounts Payable Short-term Notes Payable Accrued Expenses Total Current Liabilities Long-term Debt Total Liabilities Common Stock Retained Earnings Total Shareholder's Equity Total Liabilities and Owners' Equity 2017 862,000 1,006,000 578,000 2,446,000 2,008,000 9,338,000 8,644,000 4,590,000 4,112,000 4,748,000 4,532,000 7,194,000 6,540,000 764,000 158,000 2016 678,000 730,000 600,000 540,000 198,000 a) What is the Discretionary Financing Needed (DFN) in 2018? Is this a surplus or deficit? b) DFN will be absorbed by long-term debt. Set up an iterative worksheet to eliminate it. 318,000 1,240,000 2,046,000 3,286,000 2,900,000 1,638,000 1,616,000 2,270,000 2,024,000 3,908,000 3,640,000 7,194,000 6,540,000 228,000 966,000 1,934,000 The firm has forecasted sales of $7,100,000 and a tax rate of 40% for 2018. Cost of goods sold and S,G&A expense in 2018 are expected to be the average of their two-year proportion of sales. On the balance sheet, accounts receivable, inventory, accounts payable, and accrued expenses are expected to be at the two-year average of the proportion of these items in relation to sales. The firm has planned an investment of $500,000 in fixed assets in 2018, with an estimated life of 10 years and no salvage value. These fixed assets will be depreciated using the straight line depreciation method. All other financial statement items are expected to remain constant in 2018. Assume the firm pays 4% interest on short-term debt and 7% on long term debt. Assume that the dividends in 2018 will be the same as those paid in 2017.